FINRA Fines and Bans David Lerner for Misleading and Overcharging Investors

The Financial Industry Regulatory Authority (FINRA) ordered David Lerner Associates, Inc. (DLA) of Syosset, NY, to pay approximately $12 million in restitution to customers who purchased shares in Apple REIT Ten, a non-traded $2 billion Real Estate Investment Trust (REIT) DLA sold, and to customers who were charged excessive markups. FINRA also fined DLA more than $2.3 million for charging unfair prices on municipal bonds and collateralized mortgage obligations (CMOs) it sold over a 30 month period, and for related supervisory violations.

David Lerner personally misled over 1,000 customers at four or more seminars, by characterizing the Apple REIT Ten “a fabulous cash cow” and a “gold mine,” according to FINRA. Lerner was banned from the securities industry for a year and was also fined $250,000. FINRA also sanctioned DLA’s Head Trader, William Mason, $200,000, and suspended him for six months from the securities industry for his role in charging excessive muni and CMO markups.

Susan Axelrod, Executive Vice President of Member Regulation Sales Practice, said, “This case stands for the proposition that senior officers of firms, even at the CEO level, will be held accountable for systemic, detrimental harm to customers. Protection of the investing public remains the most important goal of the examination and enforcement teams throughout the country.”

Brad Bennett, Executive Vice President and Chief of Enforcement, said, “David Lerner and his firm targeted unsophisticated and elderly customers, grossly failing to comply with basic standards of suitability in selling Apple REIT Ten to thousands of customers. Firms must conduct a thorough suitability analysis before selling products, and make accurate disclosure of risks and features at the point of sale, especially with alternative investments such as non-traded REITs.”

FINRA also required DLA to retain independent consultants to review and propose changes to its supervisory systems and training on both sales of non-traded REITs and pricing of CMOs and municipal bonds. In addition, DLA agreed to revise its advertising procedures, including videotaping sales seminars attended by 50 or more people for three years, and is required for one year to pre-file all advertisements and sales literature with FINRA at least 10 days prior to use.

In concluding this settlement, DLA and David Lerner neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. The settlement will also result in a hearing panel decision against the firm and Mason related to excessive muni and CMO markups becoming final.

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This entry was posted on Thursday, October 25th, 2012 at 2:02 pm and is filed under WT Blog.
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